Your
consulting firm was just granted an exclusive contract for your state. You now
must decide your pricing policy, given the following relationships:
P = $1400 – 0.0004Q
MR
= $1400 – 0.0008Q
AVC
= $1000
Where P is the price, Q the quantity, and AVC the average variable cost.
The
firm will encounter no fixed costs, and all revenue is after taxes. As your
firm has been granted an exclusive contract, your pricing and output decisions
will be those of a monopolist.
Tasks:
- Using the data above, calculate
the output the firm will provide. - Determine the price at this
output level. - Complete the Microsoft Excel
Template given below using the data in the problem. - Check whether your data is
consistent with your calculations in question 1. Why or why not? - Now assume that the state
decides to give as many contracts as it can for the same activity, so your
firm is now operating in a perfectly competitive market. How will your
price and output decisions change? Explain the differences and why these
changes happened.
·
Compile your
calculations and graph in the Microsoft Excel spreadsheet provided and your
analysis in a Microsoft Word document in Apa format.
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